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Speech by Hans Hoogervorst on "The imprecise world of accounting"

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Jun 20, 2012

On June 20, 2012, IASB Chairman Hans Hoogervorst addressed the International Association for Accounting Education & Research (IAAER) conference in Amsterdam. His speech, "The imprecise world of accounting," defended accounting against unreasonable expectations and yet showed what accounting can contribute and where the focus of the future work of the IASB is to be found.

The IASB chairman started his speech by declaring that accounting must not be taken as an exact science — it is often regarded as bean-counting, and the expectation that it can, as Sir David Tweedie, Hans Hoogervorst's predecessor, said, "keep capitalism honest" and prevent through transparency crises such as the financial crises, has put accounting under a lot of pressure.

However, as Mr. Hoogervorst pointed out, accounting is full of judgments and decisions. In his speech, he cited measurement techniques, business models, and intangible assets as examples. At some length he discussed the problem of the other comprehensive income (OCI) ("There is a vague notion that OCI serves for recording unrealised gains or losses, but a clear definition of its purpose and meaning is lacking.") and admitted that the IASB needs to address it because there is much important information in OCI about what gains or losses are "sitting" in the balance sheet. He promised a thorough review of OCI and net income in the upcoming revision of the Conceptual Framework.

After giving reasons for accounting not being an exact science, Mr. Hoogervorst turned to the question of what accounting can achieve. He stressed that IFRSs as global standards have already contributed a great deal to transparency and international comparability. He illustrated his point by comparing private sector accounting with the "anarchy" of public sector accounting. Mr. Hoogervorst left no doubt that there will always be room for improving the standards, but he also stressed that this improvement should follow sensible lines that take into account what accounting can do and what it can't. To his mind, any attempt at improving the standards should be governed by three terms:

  • Principles.
  • Pragmatism.
  • Persistence.

Principles to avoid rules reflecting pseudo-exactness, pragmatism in accepting that there will not always be a precise answer to every question,, and persistence vis-à-vis the pressure that the IASB is continually facing in form of special interests.

Click for the full text of the speech on the the IASB's Web site.

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